The European Commission has taken a further step towards creation of a single EU VAT area with proposals to allow member states greater flexibility in applying a range of reduced rates between zero and 15%, subject to an overall average of 12%. A new list specifically excluding certain products from reduced rates will replace the current framework. SMEs below a €2m revenue threshold will qualify for simplified registration and record keeping, while a new exemption will apply to companies operating in more than one member state with a turnover below €100,000.
Member states can currently apply a reduced rate of as low as 5% to two distinct categories of products in their country. A number of member states also apply specific derogations for further reduced rates.
In addition to a minimum standard VAT rate of 15%, the new rules would allow:
two separate reduced rates of between 5% and the standard rate;
one zero rate; and
one reduced rate between 0% and the reduced rates.
This will be subject to each member state maintaining an overall average VAT rate of at least 12%.
The current list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate would always apply.
While current national exemption thresholds would remain, the proposals would introduce:
a €2m revenue threshold across the EU, under which small businesses would benefit from simplification measures, whether or not they have already been exempted from VAT;
the option for member states to free small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting or returns; and
a turnover threshold of €100,000, which would allow companies operating in more than one member state to benefit from the VAT exemption.
The proposals will now be considered by the EU Parliament and the European economic and social committee before submission to the Council for adoption.
EU taxation commissioner, Pierre Moscovici, commented: ‘We are taking another step towards creating a single VAT area for Europe, with simpler rules for our member states and companies.’ The new approach will offer ‘common rules where necessary for the functioning of the internal market and greater flexibility for governments to reflect their policy preferences through their VAT rates,’ he said.
The European Commission has taken a further step towards creation of a single EU VAT area with proposals to allow member states greater flexibility in applying a range of reduced rates between zero and 15%, subject to an overall average of 12%. A new list specifically excluding certain products from reduced rates will replace the current framework. SMEs below a €2m revenue threshold will qualify for simplified registration and record keeping, while a new exemption will apply to companies operating in more than one member state with a turnover below €100,000.
Member states can currently apply a reduced rate of as low as 5% to two distinct categories of products in their country. A number of member states also apply specific derogations for further reduced rates.
In addition to a minimum standard VAT rate of 15%, the new rules would allow:
two separate reduced rates of between 5% and the standard rate;
one zero rate; and
one reduced rate between 0% and the reduced rates.
This will be subject to each member state maintaining an overall average VAT rate of at least 12%.
The current list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate would always apply.
While current national exemption thresholds would remain, the proposals would introduce:
a €2m revenue threshold across the EU, under which small businesses would benefit from simplification measures, whether or not they have already been exempted from VAT;
the option for member states to free small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting or returns; and
a turnover threshold of €100,000, which would allow companies operating in more than one member state to benefit from the VAT exemption.
The proposals will now be considered by the EU Parliament and the European economic and social committee before submission to the Council for adoption.
EU taxation commissioner, Pierre Moscovici, commented: ‘We are taking another step towards creating a single VAT area for Europe, with simpler rules for our member states and companies.’ The new approach will offer ‘common rules where necessary for the functioning of the internal market and greater flexibility for governments to reflect their policy preferences through their VAT rates,’ he said.
